Haroon Bhorat

This paper attempts to investigate the impact of sectoral wage laws in South Africa. Specifically, we examine the impact of minimum wage laws promulgated in the Retail, Domestic work, Forestry, Security, and Taxi sectors using 15 waves of biannual Labour Force Survey data for the 2000-2007 period. Using a quasi-experimental approach, we apply two alternative specifications of a difference-in-differences model to estimate the impact of multiple minimum wage laws in South Africa on employment, wages, and hours of work. In order to assess whether the changes experienced by workers in the sectors analysed were unique to those sectors, a unique control group is identified for each sector.

We find some evidence of a significant increase in real hourly wages in the post-law period in four of the five sectors examined. Our results also suggest that whilst there was no significant impact of the laws at the extensive margin, there was some evidence of an adjustment at the intensive margin in certain sectors. We also find that in three of the five sectors, increases in real hourly wages were sufficient to outweigh intensive margin adjustments so that workers in these sectors experienced an improvement in real monthly income as a result of the law.

Keywords: Minimum Wage, South Africa, Wage, Employment, Hours of Work

JEL Classification: C21, J23, J30, J31, J38

Acknowledgements: The research, from which this paper emanates, is commissioned and funded by the International Development Research Centre (IDRC).

This paper investigates the labour market destinations of graduates from seven higher education institutions in South Africa. A three-step estimation procedure is employed in which the relative importance of covariates such as age, race, and gender in each stage from educational attainment to pre-defined labour market outcomes, is estimated. The results indicate that race continues to be a significant determinant in South Africa of the probability of outcomes such as graduation and employment even when controlling for institution type and field of study. No differential in earnings is apparent on the basis of race once individuals have been selected into employment. Whilst socio-economic variables are important in determining graduation and success in the labour market, they are not crucial.


JEL Codes: I23, I24, J24, J30

Keywords: Labour Markets, Higher Education, Employment, Wages

Acknowledgements
The research, from which this paper emanates, was commissioned and funded by the Human Sciences Research Council.

This paper attempts to understand some of the key drivers of employment and earnings trends within the South African labour market in the 15 years following the demise of apartheid. A number of factors are discussed which feature in the understanding of South Africa’s labour market dynamics in general, and its high unemployment levels in particular. The role of demographic characteristics in determining labour market outcomes is investigated, along with employment trends by sector. The paper also analyses the skills mismatch between labour demand and supply. The role played by the institutional regulatory framework in the labour market is examined and estimates of the wage premia associated with union and bargaining council membership are presented. The paper also discusses the role played by the quality of higher education in determining labour market success.


JEL Codes: J21; J50

Keywords: South Africa; labour market; unemployment; labour force; employment

Acknowledgements
The assistance of DPRU researchers: Elne Jacobs, George Mutasa and David Tseng, is gratefully acknowledged.
The research, from which this paper emanates, was commissioned and funded by the International Development Research Centre (IDRC).

The post-1994 period in the South African economy is characterised, perhaps most powerfully, by the fact that the economy recorded one of its longest periods of positive economic growth in the country’s history. One of the more vexing issues within the economic policy terrain in post-apartheid South Africa though, has been the impact of this consistently positive growth performance on social welfare. Many observers have highlighted the potentially harmful consequences of persistently high levels of poverty and particularly, economic inequality on the quality and sustainability of democracy. The evidence suggests, at best, six key trends which are noteworthy in terms of observing changes and challenges in South Africa’s second decade of democracy. Firstly, it is clear that both absolute and relative levels of poverty have fallen for African- and female-headed households. And it is a result invariant to the choice of poverty line. Secondly though, we continue to show that race and gender remain overwhelming determinants of this poverty profile. Thirdly, the trends in income inequality suggest that one of the world’s most unequal societies has quite possibly become the most unequal. In turn, and our fourth key deduction, it is evident that income inequality between racial groups – to all intents and purposes between Africans and Whites – is driving this overall increase. Our analysis of the nature of economic growth since 1995 suggests that despite positive economic growth, individuals at the top-end of the distribution have gained the most from the post-apartheid growth dividend. Indeed, what this suggests is that the country’s current democratic growth model is crafted around supporting incomes at the bottom-end of the distribution through an extensive social transfer programme, whilst offering few returns to those in the middle of the distribution. It is not evident, as South Africa enters its first post-1994 recession with declining tax revenues and rising fiscal deficits, whether such a growth model is indeed desirable or sustainable.

JEL Code: I3

Keywords: Poverty, Inequality, Social Transfers

Acknowledgements: The research, from which this paper emanates, was originally commissioned the Presidency.

I provide six possible employment creating policy options within the arena of principally, but not exclusively, active labour market policy. The notion is that interventions in these areas should provide for short-term and possibly long-term employment creation avenues and options for the currently unemployed. In some cases, interventions are provided that could plausibly also stem the severe loss of jobs the economy experienced since the recession.

Acknowledgements: The research, from which this paper emanates, was commissioned and funded by the National Research Foundation (NRF) and the National Planning Commission (NPC).

Assessments of the impact of minimum wages on labour market outcomes in Africa are relatively rare. In part this is because the data available do not permit adequate treatment of econometric issues that arise in such an assessment. This paper attempts to estimate the impact of the introduction of a minimum wage law within the Agriculture sector in South Africa, based on 15 waves of the biannual Labour Force Survey (LFS), starting in September 2000 and ending in September 2007.

The chosen sample includes six waves before the legislation‟s effective date (March 2003) and nine afterwards. All 15 waves are pooled and treated as repeated cross sections over time. In order to assess whether the changes experienced by farm workers are unique, we identify a control group that has similar characteristics to the treatment group. Our econometric approach involves using two alternative specifications of a difference-in-differences model. We test whether employers reduced employment, and whether they responded at the intensive margin by reducing hours of work. The law also required non-wage benefits to be implemented, and we track the response here in the form of one such provision, namely that of a written contract.

The results suggest a significant reduction in employment in Agriculture from the minimum wage, an increase in wages on average, no significant change in hours worked and a sharp rise in non-wage compliance.

Acknowledgements: The research, from which this paper emanates, was funded by the International Development Research Centre (IDRC).

Please note that an errata version of this working paper is listed below. Table 1 has been duplicated and the correction was made.

We estimate the gender wage gap for Africans in post-apartheid South Africa over the 2001 to 2007 period. Separate male and female earnings equations yields no significant decline in the conditional wage gap, regardless of whether we correct for selection into the labour force and employment or not. Notwithstanding this, the data appear to reveal a decline in the “explained” proportion of the gap with no significant change in the “unexplained” proportion of the gap. Nevertheless, the “unexplained” proportion or discrimination accounted for 71 percent of the gap in 2007 when using the uncorrected estimates (and the male wage structure as the non-discriminatory norm) thus highlighting the presence, arguably, of substantial discrimination against African women in the post-apartheid South African labour market.


We note though that the assumption that the “unexplained” component accounts for discrimination has been criticized for a number of reasons, including the fact that women may self-select into certain types of jobs, the impact of gender-based pre-labour market factors as well as omitted variable bias. Finally, we find that using the either the male or pooled wage structure as the non-discriminatory wage structure provides similar results when undertaking the decomposition. In turn, using the female wage structure results in the harshest results as far as gender discrimination is concerned.


Acknowledgements: The authors would like to thank Dorrit Posel for comments on earlier versions of this study.

This paper investigates the take-up rate or claim-waiting rate of the unemployed under the South African Unemployment Insurance Fund (UIF) system. The goal is to identify disincentive effects that income replacement rates (IRR) and accumulated credits may have on the claimant‟s behaviour in terms of their claim waiting period rate (or how quickly they apply for UIF benefits). Utilizing nonparametric and semi-parametric estimation techniques, we find that there is little evidence, if any, for job disincentives or moral hazard problems. More specifically, the majority of claimants that are quickest to claim the UIF benefits are those who have worked continuously for at least four years and accumulated the maximum allowable amount of credits.
We also note that claimants‟ claim-waiting periods are indifferent with regard to levels of income replacements yet extremely sensitive to the amount of credits accumulated. Ultimately, the recipients of the UIF benefits do not depend heavily on the replacement incomes and prefer waiting longer for employment opportunities to arise as opposed to exhausting their accumulated credits. The semi-parametric Cox‟s Proportional Hazard (PH) model confirms that there is a positive relationship between the claimant‟s accumulation of credits and the associated take-up rate of the UIF.


Acknowledgements: The research, from which this paper emanates, was commissioned by the Africa Growth Initiative (AGI), at the Brookings Institution.

The literature on the union wage gap in South Africa is extensive, spanning a range of datasets and methodologies. There is however little consensus on the appropriate method to correct for the endogeneity of
union membership or the size of the union wage gap. Furthermore, there are very few studies on the bargaining council wage premium in South Africa due to lack of data on coverage of employees under these agreements.
Our study, using 2005 Labour Force Survey data, firstly reconsiders the union wage gap controlling for both firm-level and job characteristics. When correcting for endogeniety of union status through a two-stage selection
model and including firm size, type of employment, and non-wage benefits, we find a much lower union wage premium for African workers in the formal sector than premia reported in some previous studies. Secondly,
our study estimates bargaining council wage premia for the private and public sectors. We find that extension procedures are present in both private and public bargaining council systems, but that unions negotiate for
additional gains for their members at the plant-level. Furthermore, there is some evidence that unions negotiate for awards for their members in the private sector, irrespective of bargaining council coverage.

This paper attempts to estimate the causal effect of government enforcement on compliance with minimum wages in South Africa, a country where considerable non-compliance exists. The number of labour inspectors
per capita is used as a proxy for enforcement, whilst non-compliance is measured using an index of violation that measures both the proportion of individuals violated, as well as the average depth of individual violation.
Due to the potential simultaneity between enforcement and compliance, the number of labour inspectors is instrumented by the number of non-inspectors. The results suggest that there are a variety of factors
impacting on violation, including firm-level, sectoral and spatial characteristics. One of the key determinants of violation is found to be the local unemployment rate. However, the number of labour inspectors is found to
be insignificant in determining non-compliance.


Key Words: Minimum Wage, Enforcement, Compliance, Depth of Violation, South Africa

Minimum wage legislation is central in South African policy discourse, with both strong support and strong opposition. The validity of either position depends, however, on the effectiveness of minimum wage
enforcement. Using detailed matching of occupational, sectoral and locational codes in the 2007 Labour Force Survey to the gazetted minimum wages, this paper presents, we believe for the first time, estimates
of minimum wage violation in South Africa. Our results give considerable cause for concern. Minimum wage violation is South Africa is disturbingly high. We find that 44% of covered workers get paid wages below the
legislated minimum, whilst the average depth of shortfall is 35% of the minimum wage. Around this average, violation is most prevalent in the Security, Forestry and Farming Sectors. We hope that the quantifications
in this paper will provide a more solid basis for discussion of minimum wage levels and their enforcement in South Africa.


Key Words: Minimum Wage Violation, South Africa

One of the key interventions aimed at improving the welfare of South African households has been local government’s provision of a package of free basic services (FBS) to poor households. It is, however, not
completely clear how different municipalities identify households which are eligible for FBS. Evidence suggests that many municipalities currently provide services to all households with a monthly income of less than
R1500 per month. This “FBS poverty line” is, however, low in comparison with a number of unofficial poverty lines utilised by policymakers and researchers in South Africa. This paper considers the impact of increasing
the value of the FBS line, both in terms of the additional share and number of households eligible for support as well as the additional financial cost. We find that urban municipalities will face the steepest increases in
their FBS budgets with any potential increase in the FBS poverty line.


keywords: free basic services, poverty line, municipal services, South Africa

Even though the South African economy is formally categorised as an upper-middle income country, it has one of the highest unemployment rates in the world. The economy’s unemployment rate stands officially at 26.7 per cent and 38.8 per cent. This characteristic, more than any other, has placed market regulation high on the agenda of pertinent policy issues in South Africa. This paper, then, in trying to mature the debate on labour regulation and worker protection, has two key objectives. Firstly, we attempt to provide more nuanced and empirically-based measures of labour regulation and worker protection for South Africa, within an international comparative context. Secondly, we attempt a legal overview of some of the key legislative and institutional challenges that exist within the South African labour market. We also attempt an overview of the evidence relating to the degree of actual and perceived rigidity within the South African labour market. The evidence utilised will hopefully add value to the debates thus far on the extent and nature of labour regulation in South Africa.

Analysis using data from the 1995 and 2000 Income and Expenditure Surveys has found a significant increase in income inequality over the period and, further, that this increase in inequality eroded any significant poverty-reduction gains from higher economic growth. Secondly, the study aims to identify the drivers of the reproduction of inequality in post-apartheid South Africa. Throughout the time period wage inequality has been the main contributor to the growing income inequality. While we found that social transfers have little effect on income inequality when we decomposed the various sources of income, when grant income is excluded as a source of income from total income we find that it is an extremely important supportive source of income and without it many households would experience negative income growth.

This paper, while broadly located within reforming the labour market policy debate, is specifically focused on one aspect of the labour regulatory regime, namely the dispute resolution system. Hence, we attempt to understand the efficiency and effectiveness of the country’s institutionalised dispute resolution body, the Commission for Conciliation, Mediation and Arbitration (CCMA). A better and more informed understanding of the nature of dispute resolution and its determinants, it would seem, remains central to any detailed debate regarding labour market institutions in particular and labour market regulation in general. Ultimately then, the study intends to empirically verify the patterns of dispute referral, settlement and determination regionally, sectorally and historically. It should be noted at the outset that this paper, possibly for the first time for South Africa, provides a detailed on economic and econometric analysis and interpretation of dispute resolution in the post-apartheid period.

During 2006 and 2007, a selection of research papers, in the main written by labour law experts, have provided critical input and guidance on the nature of the debate around the efficiency of the labour regulatory environment in South Africa. In November 2007, key stakeholders from government, labour and business attended a workshop on the Labour Regulatory Environment in South Africa at the Mount Grace Hotel, Magaliesberg, where the results of the aforementioned studies were presented and debated. Labour law experts generally agree that the current challenges in the regulatory environment have arisen disproportionately from the improper realisation of the labour market reforms introduced in the mid-1990s.

There has been very little detailed exploration of the relationship between wage income and household inequality in South Africa despite the relevance of this issue for many contemporary growth and development policy debates. This article is directed at such an analysis. It uses a decomposition of household income inequality by income components to highlight the dominance of wage income in driving overall income inequality. This is followed by a detailed discussion of the distribution of the unemployed across different ...

Drawing on survey data from 1995, this article shows that the level of aggregation is an important component in the analysis of poverty. Utilising the Headcount Index and cumulative distribution functions, the article examines earnings among individuals and households. Specifically, it is shown that poverty measures at the individual level, compared with estimates at the household level, will transmit differential rankings of indigence. Both are important predictors of poverty and hence should be coupled when trying to understand low earnings in a society.

This study, through an exploratory, but promising methodology, provides a tentative analysis of the relationship between HIV, poverty and labour markets. This was undertaken through the use of the October Household Survey of 1999 and the Antenatal Clinic Survey of 1998. It is clear from the paper that the relationship between poverty, labour markets and HIV is not homogeneous but multi-dimensional in character. The analysis examines these interrelationships at both the household and individual level. The preliminary key finding from the analysis is that imputed HIV positive women come from poorer households than imputed negative women, but this observed difference is small. It is suggested that the analysis be repeated using larger samples of data, such as that now available from Census 2001

L'indicateur «Embauche des travailleurs» de la base de donnée de la Banque mondiale «Doing Business», enquěte de 2006, a présenté des résultats mitigés sur le contenu et la portée de la réglementation du travail en Afrique du Sud. Les auteurs indiquent que ces mesures – avec leur vision étroite de la législation – ne fournissent qu'une image incomplète de la réglementation du travail. Ils proposent et étudient trois extensions possibles à la structure de «Doing Business», notamment: la «microlégislation», les institutions du marché du travail et l'interprétation jurisprudentielle. Ils concluent par un plaidoyer pour leur prise en compte dans l'évaluation du cadre réglementaire du travail.

The “Employing Workers” indices compiled from the World Bank's Doing Business (DB) survey for 2006 presented mixed results as to the nature and extent of labour regulation in South Africa. Arguing that these measures – with their narrow focus on legislation – provide only a partial picture, the authors suggest and investigate three possible extensions to the DB framework with the aim of achieving a more realistic representation of labour regulation in practice, namely: “micro-legislation”, labour market institutions and judicial interpretation. They conclude with a plea for taking account of the crucial importance of these features in the assessment of labour regulation frameworks.

The current global environment poses both a threat and an opportunity for Africa. Taking advantage of the openings afforded by trade and investment, while managing the risks and focusing on benefits for the poorest, is the central African challenge in economic policy-making. The policies needed to manage this challenge will be both macro and micro in nature and, especially, the macro–micro linkage will be crucial. The past and current disappointments with macro-level policies are gradually being understood by analysts in ...

Los indicadores de las normas laborales publicados en el estudio del Banco Mundial Doing Business 2007 son ambiguos sobre la naturaleza e intensidad de la reglamentación del trabajo en Sudáfrica. Estos indicadores, al centrarse exclusivamente en la legislación, dan una imagen parcial, por lo que los autores exploran tres posibles elementos para ampliarlos con miras a trazar un panorama más realista de la situación normativa del mundo del trabajo: la «microlegislación», las instituciones la-borales y la interpretación judicial. Abogan por que se tengan muy presentes estos elementos al valorar el ordenamiento laboral.

Unquestionably, poverty and inequality are among the major challenges that face South Africa today. In this well-researched, comprehensive volume, the authors use new techniques to measure and analyse household inequality and poverty in South Africa analyse the nature and functioning of vulnerability in the labour market explore the links between labour market participation and household poverty and inequality investigate current social and labour market policies examine the implications of current anti-poverty policies and strategies.

An exciting aspect of this ground-breaking work is the proposals for the development of new and effective strategies and policies to fight poverty in South Africa.

"This study uses current methods in modern labour economics, deploys them on appropriate South African data sets, and answers questions on which previously we had limited knowledge, or in some cases, none at all. We regard this volume as the major reference work on labour markets, poverty and inequality in South Africa."